http://www.newsday.com/news/opinion/ny-vppri023567001dec02,0,2924894.sto
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Iraq Could Produce Another Enron
by Nomi Prins
Scrounging up money for anything Iraq-related has been the Bush
administration's most consistent economic policy. And it's been
ridiculously easy ever since Congress blessed the first "emergency
package" defense budget addendum in April.
Fast forward eight months, and the latest $87-billion injection that
went
predominantly into the Iraq black hole puts the total sum of "liberation
and reconstruction" funds at more than a quarter- trillion dollars,
roughly the combined annual revenue of IBM and General Electric.
But you wouldn't know that we were dealing with such enormous quantities
from the glaring absence of consolidated financial reporting on Capitol
Hill. In fact, an endless gush of money keeps streaming out of
Washington
faster than the White House seems to be keeping track of it.
Perhaps it's no surprise that complete financial statements on Iraq
haven't been disclosed. After all, we're dealing with the same crew that
hasn't indicted Enron's Ken Lay or WorldCom's Bernie Ebbers. But, by not
producing comprehensive and transparent records, the Bush administration
is shirking a major domestic and international oversight responsibility.
As one UN senior insider said, "No country has ever had so much control
over information and resources for reconstruction efforts in history."
Although the amount of public money circling Iraq is staggering, there
is
no way to even trace it. Therefore, whether it's being spent wisely and
methodically, whether projected revenues are on target or realistic, and
whether cash is leaking out around the edges remain a total mystery.
During the stock market boom, fraudulent corporations hid losses and
boosted earnings by playing complex financial shell games designed to
withhold information from regulators and the public. Enron perfected
this
technique with the establishment of ghost subsidiaries. But the
murkiness
of Iraq finances goes beyond a mere jiggering of the books. In the case
of
Iraq, there are no obvious books.
Adding to the subterfuge is the fact that a slew of separate entities
are
involved in what might be called Operation Incorporate Iraq. They span
the
State Department, Treasury Department, multiple Defense Department
divisions, and international organizations like the World Bank and
United
Nations. Each is privy to receiving and responsible for disclosing only
a
subset of information.
What should be established is an independent, international auditing
body
with full authority and ability to compile all the information regarding
the Iraq balance sheet. Instead, the administration's modus operandi is
adding layers to the existing U.S. structure. The Pentagon just set up a
new division of the Coalition Provisional Authority, called the Program
Management Office, to track the next round of contract money flow.
On the revenue side of the Iraq balance sheet, we have oil, the true
information about which lies solely with the CPA. The CPA and the
administration continuously restate revenue estimates. To date, they are
down from an unsubstantiated $20 billion before the war to an equally
unsubstantiated $2.5 billion, an almost 90-percent drop. Yet, those
dancing numbers were used to justify the CPA's most recent $18.7-billion
handout.
Brazenly, despite this obvious downward spiral, the CPA anticipates oil
revenues to magically leap five-fold by the end of 2004 and seven-fold
by
2007. That kind of unquestioned optimism fueled the Internet fire. No
one
in Congress raised a finger of caution then. No one in the
administration
is now. What's more, the CPA budget calls for another $39 billion in
expenditures over the next three years.
Even more alarming than those exploding expenses is that the CPA has no
backup plan in case next year's oil revenues fall short. According to
CPA
spokesman, Maj. Joseph M. Yoswa, "It would be hard for me to predict
what
would happen. When we get there, we'll make determinations." If this
year's regularly revised estimates of expenses and revenues are anything
to go by, those "determinations" will translate into more congressional
monetary demands.
Inflated expectations and widespread deception first fabricated and then
popped an $8-trillion stock market bubble. As Rep. Henry A. Waxman
(D-Calif.), ranking minority member of the Committee on Government
Reform,
said, "With Enron, the lack of accountability and transparency took a
huge
toll on employees and investors who were left with nothing while
executives walked away wealthy. We want to make sure that doesn't happen
in Iraq." Because this time the toll of playing fast and loose with the
money would be on the shoulders of taxpayers.
Without a paper trail, there's also no way of assigning culpability for
potential fraud. As it is, up to $11.2 billion in contracts have been
awarded under less than competitive circumstances to companies such as
Halliburton and Bechtel.
This clandestine process leads to a lack of accountability. In the U.S.
financial scandals, secrecy combined with corporate hype allowed CEOs to
stuff their pockets during the boom. Likewise, the Bush administration
has
a lot riding on the perceived financial success of Corporation Iraq -
re-election for starters.
With high-stakes incentives to fudge numbers and no controls to monitor
them, the results could be disastrous, or criminal. Unfortunately, we've
all been there before, and the results weren't pretty.
Nomi Prins, a former investment banker, is the author of the forthcoming
book "Other People's Money: The Corporate Mugging of America."